SBA 504 Loan
Brian's story is an example of a successful SBA 504 loan. Even though your story may not exactly match Brian's, your project may still be a good fit for an SBA 504 loan.
Brian had built his business to the point that his team had outgrown their current facility and he was looking for a new office/warehouse location.
The challenge was that he was growing so rapidly, his business was trying to preserve cash. If he secured a loan he needed both a low down payment and a low-interest rate to stay as liquid as possible.
Brian approached his local bank to seek funding to purchase a nearby office/warehouse building. Brian’s lender reached out to SCKEDD – a local non-profit lender – and asked them to look at backing the project with an SBA 504 loan. Brian began working with the bank to get the loan to SCKEDD to package and send to the SBA. Brian was approved for an SBA 504 loan that allowed him to purchase and renovate his new business location.
To keep his business on the path to success, Brian meets a few times per year with his banker and the team at SCKEDD.
SBA 504 - Borrower’s guide
THE PROCESS for an SBA 504 LOAN
You go to the bank for a loan and lender recognizes if SBA 504 loan is a good fit and calls SCKEDD to determine if the project is eligible.
Once the loan is approved by the bank, the bank sends the loan to SCKEDD so we can begin the underwriting process.
When the loan package is complete and approved by our Loan Review Committee, we submit it to SBA.
If SBA approves the loan, our team assists you, the borrower, for the life of the loan.
Commercial real estate
For commercial real estate you may consider an SBA 504 loan. SBA 504 Loan provides business owners with up to $5 million for purchasing real estate and equipment. This popular program features a significant lower down payment, long-term fixed rates, and lower fees than the SBA 7 (a) loan program. If you are buying, constructing, renovating a building, or purchasing heavy machinery or equipment, the SBA 504 loan program may be idea for your business needs.
SBA 504 loan advantages
Low down payments
SBA 504 loans provide an opportunity to provide a smaller down payment. This allows your business to conserve working capital to grow your business.
Interest Rates Below Conventional Loan Rates
The SBA 504 loan has low interest rates that vary based on market forces. The actual interest rate that the borrower will pay is calculated based on the debenture rate for the month the loan is funded. SBA 504 loans are funded by monthly bond (debenture) sales to investors on Wall Street.
Fixed Interest Rates
Fixed interest rates help with budgeting. The SBA 504 loan program offers a fixed rate for 10 to 25 years on real estate and long-term equipment, based on the useful life of the equipment.
Qualified borrowers can use SBA 504 loans to
Buy, build or renovate commercial real estate
Purchase machinery or equipment
Refinance debt for commercial estate and equipment
What are the requirements for an SBA 504 loan? You may qualify if you and your business meet the following criteria
The business is for-profit
The business is in the state of Kansas
The business is valued at less than $15 million and the business has an after-tax profit of less than $5 million a year over the average of two years
The business owner will occupy 51% or more of commercial real estate that is being renovated or purchased
The business owner will occupy 60% or more of commercial real estate that is being built
Individuals that own 20% or more of the business are willing to act as personal guarantors
The business owner can meet the down payment requirements
Down payment requirements
You can expect to put down 10% to 20% of the project on average. The balance is often financed in part by a bank, up to 50% of the total loan, and in part by SCKEDD, up to 30 to 40% of the total loan.
RATES AND FEES
Interest rates for the Small Business Administration 504 loan program are set one time per month with a bond sale. They are FIXED for the life of the loan and fully amortized.
There are generally four fees a small business borrower will pay for this loan
A one-time origination fee of 2.65% of the SBA 504 portion of the loan
A one-time bank participation fee of 0.5% of the bank’s loan amount
Attorney closing costs of $2,500
Recording and title costs - typically financed as part of the loan